ANALYSIS OF THE MUTUAL RELATIONSHIPS BETWEEN THE EXCHANGE RATES AND THE STOCK INDICES

The main aim of this paper is to analyze the relationships between the exchange rates and the stock indices. The analysis was done for the Visegrad countries (the Czech Republic, Hungary, Poland and Slovakia) using the daily data from January 1, 1999 to May 21, 2010. We applied the Phillips-Perron unit root test to examine the existence of unit roots. Both time series of almost all countries contained one unit root (the only exception was Poland); the existence of the long-run relationships between these time series in individual countries was tested based on Johansen cointegration procedure and was not confirmed. Since one of the typical features of the financial time series is volatility clustering, we applied the ARCH methodology to capture it and carried out the Granger causality tests both on original return series and volatility-filtered series with different results.